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The Horizontal Merger: Its Motives and Spatial Employment Impacts Author(s): Milford B. Green and Robert G. Cromley Source: Economic Geography, Vol. 58, No. 4 (Oct., 1982), pp. 358-370 Published by: Clark University Stable URL: http://www.jstor.org/stable/143460 . Accessed: 15/01/2011 07:53
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THE HORIZONTAL MERGER: ITS MOTIVES AND SPATIAL EMPLOYMENT IMPACTS

MILFORD B. GREEN University of Saskatchewan ROBERT G. CROMLEY University of Kentucky
This paper examines the importance of horizontal mergers as a form of investment activity that has spatial ramifications. The complexity and motivations of horizontal mergers and the following rationalization process are illustrated by a case study of a firm in the pulp and paper industry. In addition, pre-merger and post-merger employment levels of individual plants in a number of manufacturing sectors are compared for the period 1972-1978. Every industry and region of the United States experienced an increase in employment in the period immediately following the horizontal merger. The rationalization process is seen as having a positive impact on employment levels in the short run.

The evolution of corporate capitalism has generated significant changes in modern industrial location theory. Researchers have shifted their interests from the locational decisions of the single plant firm to the decisions of the multiplant, multiproduct conglomerate. In fact, Massey [24] has questioned whether there can be a locational decision for the firm that is separate from other economic decisions. Recent criticisms of locational theory have emphasized the importance of recognizing that locational choice and change cannot be divorced from the overall structure of the system in which the individual firm resides [24; 40]. Attention should be directed to aspatial activities of the firm, such as investment decisions that have spatial ramifications. For instance, for the single plant entre preneur, the more frequent choice initially is to decide what type of product is to be manufactured rather than where production should be located [14]. Given an uncertain environment ouside the entrepreneur's realm of experience, production is usually initiated in his home town. Walker [39] has found that the locational decision made by small, locallycontrolled, single-plant firms are primarily non-economic in nature.

Additionally, as the firm evolves, its goals have grown from simple profit maximization to multiple and sometimes conflicting objectives such as growth of the firm, larger control of the market, diversification of interests, and self-preservation [8; 13; 14]. Consequently, the traditional issue of choice of location for new manufacturing is submerged within the complex decision making organization of the company. The location decision is often a non-issue, it is rather the consequence of a firm's investment policy [37; 19]. Walker and Storper [40] argue that investment decisions have predominance over location decisions because the mode of capitalist reproduction requires the commitment of money capital to be invested in fixed capital before there can be a question of where to locate a new plant. In fact, when a firm responds to external market pressure (i.e., changing demand, competition), its investment in fixed capital can take several forms: (1) alter the output levels of existing plants including closure; (2) relocate or open newrplants; and (3) acquire control of another firm [13; 14]. Increasingly, the more common form of corporate behavior is acquisition or

THE HORIZONTAL

MERGER

359

merger. Dick [7] reports that large-scale business corporations in the western world owe more to acquisition and mergers then to international expansion alone. Merger activity in the United States among large mining and manufacturing companies (large being defined as $10 million or more in assets) accounted for over 10.7 billion dollars worth of investment in 1979 [9, p. 218]. Although this activity has interested social scientists since the 1890s, the motives and impacts of mergers are still not well understood [15; 21; 35]. The corporate merger is a significant event in the life of a corporation, causing adjustments in management, employment, and linkages. This paper examines the reorganization process for one form of acquisition-horizontal mergers. Following the convention of Penrose [28] and Watts [41], mergers are defined as any combination of two or more firms with the larger being considered the acquirer. No distinction is made between mergers and acquisitions because the effects of the two are virtually indistinguishable. The research is undertaken from the perspective of the acquired firm and its host area only. Difficulties in unraveling the complex organizational structure of most acquiring firms, as well as lack of data, prevent a similar approach for acquiring firms.
GENERAL MERGER THEORIES

There are three major types of mergers: horizontal, vertical, and conglomerate [33, p. 33]. Each type is a response to differing needs by the acquiring company. Horizontal mergers expand control of business activity in the same product line. The acquiring firm desires to increase its share of the market while simultaneously eliminating some of its competition. Vertical mergers expand a firm's control into allied product lines. In this case, the acquiring company desires to increase its control over more sources of supply and distribution. Finally, conglom-

erate mergers, or diversification by acquisition, are an expansion by the acquiring company into new and different product lines. The object is to reduce business risks by the acquiring company by diversification of its interests. The bulk of recent merger research has concentrated on the conglomerate merger [3; 33]. However, the form of conglomerate mergers differs so much from case to case that the Federal Trade Commission defines three distinct types that may be loosely classified as conglomerate mergers: product extension, market extension, and "other" [9, p. 108]. A merger is considered to be a product extension when the acquiring and acquired companies are functionally related in production and/or distribution but sell products that do not directly compete with one another. A market extension merger occurs between companies that manufacture the same products but sell them in different geographic markets. Finally, the consolidation of two essentially unrelated firms is grouped in the "other" category. Although mergers differ in types, several major theories have been proposed to explain the general nature of merger behavior and activity. Beckenstein [3] suggests that the environmental conditions that motivate mergers can be broadly divided into those external to the firm and those internal to the firm. External force theories suggest that merger activity is largely a function of general business conditions. As the economy grows so does the number and size of firms. A larger number of firms means greater numbers of potential merger candidates. Concurrently, a strong economy implies that the average firm is experiencing a strong performance, making it easier to undertake a merger. However, such a theory is not without flaws. It is just as plausible to suggest that internal growth would be undertaken. Secondly, while the number of firms available for merger might increase, the improved economic conditions might also increase the possibility of a hostile reaction to a merger overture. A smaller firm that is doing well

360

ECONOMIC GEOGRAPHY

may resist losing its identity, as recent articles in the Wall Street Journal have shown. Institutional factors are also included under the external forces rubric. The two most often cited are the possibility of tax savings and the possibility of antitrust activity. Tax considerations are of lesser importance because of changes in taxation laws regarding corporations. Antitrust activity is particularly relevant for horizontal mergers since they have been a traditional target of substantial enforcement activity [6]. A second group of merger theories focus on internal forces in the life of a firm; these theories argue that mergers are undertaken to pursue continued corporate expansion by managers. The return to capital is greater for a young vigorous firm relative to a mature firm. As capital costs increase, it becomes more profitable to internalize the growth opportunities of younger firms by merger. Substantial inflation rates in recent years have also -made purchases of existing companies less costly than investment in research and development or the construction of new plants. Additionally, the acquirer benefits from the elimination of production start-up time, sometimes as much as two years, as well as from procuring the established clientele of the acquired firm [4]. Gort [12] argues that mergers also occur because there are discrepancies between the valuation placed on the firm by insiders versus outsiders. Such discrepancies may be the result of inadequate information on the part of outsiders as well as the random altering of expectations. Other motivations included here are the pursuit of monopoly power and scale economies, both long thought to be major reasons for horizontal mergers. Finally, organizational interdependence theory [29, pp. 112-142] suggests that mergers are a response to an uncertain and unstable environment. Organizations that are interdependent require exchanges of resources for survival, although the availability of these resources

is uncertain. While this approach can be used to analyze all types of mergers, only its relationship to horizontal mergers is presented here. The horizontal merger is an attempt to increase the firm's dominance in its interchange relationship, thus reducing uncertainty. The acquisition of rivals also permits the firm greater control over its external environment [29]. This approach is complementary to various geographers' constructs regarding firm acquisition behavior [20; 27]. Pfeffer and Salanick test this theory by examining the hypothesis that mergers could partially be explained by the transaction relationships between firms. They found that a relationship does exist between a number of mergers within an industry and the degree of interconnectiveness of the industry within itself. This theory also implies that natural resource based industries should exhibit a higher degree of horizontal mergers than other types of industries. The heavy dependence of these industries upon a relatively few number of suppliers make them vulnerable to demands by the suppliers. Even small suppliers could be an annoyance if they were not properly dominated.
THE POST-MERGER SPATIAL RATIONALIZATION PROCESS

The majority of past-merger research, however, suffers two major shortcomings. First, mergers are often analyzed as a homogenous whole, while, in fact, each has its own unique set of motivating factors and consequences. A second major shortcoming is that the spatial impact of merger activity is generally ignored. While it is clear that the relocation or opening of a new plant has spatial implications, only recently has there been a growing awareness of the spatial element in industrial acquisition behavior [20; 24]. A major consideration for the success of any acquisition is the geographical compatibility of the production and marketing operations of the acquiring and ac-

THE HORIZONTAL MERGER

361

quired companies [22, p. 44]. The period of post-acquisition integration usually involves not only the reorganization of managerial control and changes in product lines but also a rearrangement in the location of factories and other corporate functions [16]. Watts [41] suggests that three basic spatial rationalization policies exist: (1) Specialization-the concentration of functions that permits realization of economies of scale. (2) Concentration and Partial Disinvestment-the concentration of production at fewer sites, allowing for savings in services and linkages between plants. (3) Complete Disinvestment and Greenfield Site-the concentration of production at a greenfield site. Also, acquisitions do not always turn out well [22]. One survey reveals that over 50 percent of firms that undertook an acquisition replied they were dissatisfied with the outcome [35]. However, within one's own industry the intelligence network reduces the probability of a poor merger choice [16]. Unsuccessful mergers result in a fourth policy: (4) Complete Disinvestment and Withdrawal-the total or almost total removal of a newly acquired firm's facilities from the acquiring firm's facilities. This may occur when a merger is undertaken that later becomes too burdensome for rationalization to occur. Another possibility is the acquisition of a firm with the intent of stripping it of its assets and selling the assets to make a profit. The impact of mergers on regional development is also inconclusive. North [27] concludes that firms do not explicitly consider locational parameters in making merger decisions for diversification strategies. When attempting horizontal and vertical integration, firms preferred to

acquire candidates near the corporate headquarters location. Also, Leigh and North [20] contend that mergers are often beneficial with respect to employment and output expansion. Acquired plants often experienced increased levels of capital investment although at low levels. The long-run consequences of management change and product change were deemed uncertain. Erickson [8], on the other hand, suggests that the employment effects of acquisitions are less certain. There are two major reasons for choosing horizontal mergers for investigation. First, horizontal mergers are the dominant merger type in Western economies with the exception of the United States. Historically the United States federal government has taken the position that mergers in general, and horizontal mergers in particular, have adverse effects on the competitive structure of the economy. It is not unreasonable to assume that if a free market in mergers existed in the United States, horizontal mergers would assume greater importance. Secondly, horizontal mergers are typical of large, single-product enterprises. Thus, a successful merger requires greater spatial compatibility among the production units of the joining companies than either vertical or conglomerate mergers. The organizational structure of single-product firms display reciprocal interdependence, implying that the locations of all units within the organization are interrelated. Therefore, the acquiring firm will usually choose an acquisition with a complementary locational pattern. The period of post-merger integration should primarily involve reorganizing suppliers and market areas rather than relocation or closing old plants and opening new ones. Thus, it is easier to assess the success of horizontal mergers than either vertical or conglomerate mergers by locational and employment change in production. A
CASE STUDY OF THE HORIZONTAL MERGER RATIONALIZATION PROCESS

The complexity of the rationalization

362

ECONoMic GEOGRAPHY

process is best illustrated by examining an actual horizontal merger. The merger in question is the Riegel Paper Corporation's acquisition by Federal Paperboard Corporation. Riegel Paper was a mediumsized manufacturer of folding cartons and specialty paper products with sales of $191 million in 1971. The company owned facilities in North Carolina, New York, and New Jersey, as well as 235,000 acres of timberland with an additional 115,000 acres on long-term lease. In 1970 Riegel undertook an acquisition program to diversify its holdings. Technibuilt, a manufacturer of pre-engineered housing, and Mohawk Paper Company, a manufacturer of book covers, were acquired. The company also acquired holdings in real estate with its Community Concepts, a builder of condominiums. The paper industry in the late 1960s and early 1970s suffered from sluggish sales and weak prices [2]. The industry as a whole was plagued by excess capacity and outdated plants. Consequently, a number of firms undertook divestiture of some of their facilities. The chief executive officer of Riegel decided that because of their medium size, they could not compete in the capital intensive pulp and paper segments of the industry. This portion of the company was to be sold to larger corporations that could compete, while retaining the low capital packaging division [11]. The ensuing merger process is illustrated in Figure 1. In June of 1971, Riegel Paper and Southwest Forest Industries agreed to a merger plan of the two firms. Southwest Forest would acquire the paper and real estate portion of Riegel, while the packaging and industrial divisions of the company would form a new corporation owned by the stockholders of Riegel. The chairmen of Southwest Forest stated that the acquisition was being undertaken to remove the need to make a public offering of shares to finance expansion of their Phoenix, Arizona mill. Riegel was seen as a source of capital investment funds. Federal Paperboard during the period between June and December of 1971

decided to bid for Riegel's facilities. Federal Paperboard won the ensuing bidding process. Federal Paperboard's decision to acquire Riegel was motivated by Riegel's folding carton plant in Riegelwood, North CarQlina,as well as its timber holdings. Federal Paperboard manufactured paper products from wastepaper and the acquisition of Riegel would allow the company to undertake production from virgin timber. Federal Paperboard acquired the paper mills in New Jersey, the folding carton plant in North Carolina, and two real estate subsidiaries, one of which was Community Concepts. The packaging and industrial division of Riegel were spun off into Rexham Corporation, headed by the president of Riegel. The New Jersey paper mills were then sold to a former Riegel executive to form Riegel Products. An undisclosed amount of capital for the purchase was supplied by Southwest Forest. Riegel Products was shortlived, being acquired that same year by Southwest Forest. Southwest Forest subsequently closed its Phoenix mill, that it wanted to renovate using capital supplied from a merger with Riegel Paper. Southwest Forest also acquired General Box, allowing it to expand its operations in paperboard, something that it did not accomplish with the failure of the merger with Riegel Paper. The rationalization process was not yet complete. Federal Paperboard sold Community Concepts to a minority stockholder of Community Concepts. Federal also purchased a paper mill from Rexham Corp., while also undertaking expansion of several mills and the construction of a new mill in North Carolina in a joint venture with Canal Industries. This case study reveals several factors that operate in most of the horizontal mergers reviewed. One is that the industry is often undergoing a period of stress and readjustment. This was especially true for the meat cutting firms, the paper companies, and the petroleum companies. The second major factor was the access to raw materials. Many of the

THE HORIZONTAL

MERGER

363

Community Concepts [Technibuilt

REGEL PAPER

Moawk Paper

/
FEDERAL PAPERBOARD MohawkdMilford,N.J. Paper Plants p Community Concepts

\
Rexham

SOUTHWEST FOREST INDUSTRIES

Riegel Products

Versailles,Conn. Plant

Canal Industries New Mill Riegelwood,

New Jersey Packaging Plant

Warner Packaging Fibreboard Plant

General Box
Os

N. C.

Phoenix Plant

,...----0
-1 -

Merger Financial Backing

Attempted Merger
Fig. 1. Riegel Paper Merger Process.

Spin Off
acquiring company totally refurbished the plant trying to make an uncompetitive plant competitive. The process eventually paid off.
THE HORIZONTAL MERGER IN PERSPECTIVE

mergers were undertaken to gain control of supplies of raw materials, thus reducing risk. The petroleum industry is an obvious case in point. Finally, the acquisitions were characterized by capital investment in the acquired firm by the acquiring firms for plant expansion and modernization. A classic example was the acquisition of the color television division of Motorola by Matsushita of Japan. The

The relative importance of each type to overall merger activity can be seen in

364 180_

ECONOMIC GEOGRAPHY

160140@ 120-

1000 -D

E 80 E Z 6040IV'_ Z'9

20X/_ 1950 52 54 56 58 60 62 64
Year

66

68

70

72

74

76

78

Horizontal Mergers All Mergers except Horizontal

Fig. 2. Trends of Large Corporate Mergers.

Table 1, from a review of numerous mergers. Horizontal mergers accounted for 16.9 percent of the number of all large mergers for the period 1948-1978, while for the time period of our study, 19721978, they accounted for 22.6 percent. Similar percentages are seen for assets acquired. While horizontal mergers are not the dominant type, they are certainly an important component. Because horizontal mergers are a substantial portion of general merger activity, the question that logically follows is: Do horizontal mergers follow the same trends as other types? Figure 2 shows the number of horizontal mergers per year versus all other types of mergers. The level of horizontal merger activity does not follow the overall pattern. In fact the level of horizontal merger activity has been relatively constant, even during the merger "boom" period of 1966 to 1969. It is evident, then, that horizontal merger motivations are somewhat independent

of those that operate on other types of mergers. Thus, it is impossible to rely too heavily upon merger theories designed to explain overall merger activity. If horizontal merger trends are unrelated to overall activity, one might suppose that firms that undertake a horizontal merger are somehow different. Table 2 shows the series of tests performed on the horizontal merger acquiring firm and acquired firm versus the four other types. The table clearly demonstrates almost without exception that no difference exists between the horizontal merger firm and the other types. A difference might lie in the resource relationships of horizontal merging firms as Pfeffer and Salanick suggest. If this suggestion is valid, then a greater than average number of horizontal mergers should occur in industrial classes that are heavily resource dependent. Table 3 shows the numbers of horizontal mergers by SIC class versus all horizontal and all

THE HORIZONTAL
TABLE
LARGE ACQUISITIONS IN PUBLICLY HELD MANUFACTURING

MERGER

365

1
AND MINING FIRMS BY TYPE OF ACQUISITION

Number Type of

of Firms

Assets Acquired Billions of Dollars

Acquisition Horizontal Vertical Conglomerate Product Extension Market Extension Other

Source: Bureau of Ecoomics,

1948-1978 326 196 1404 829 76 499

Federal Trade

1972-1978 121 43 371 174 18 129

Commission,

1948-1972 16.9 10.2 72.9 43.0 3.9 25.9

Statistical

1972-1978 22.6 8.0 69.3 32.5 3.4 33.5

Report

1948-1972 18,292 10,094 80,605 36,729 6,380 37,496

1972-1978 5,464 2,468 22,322 7,740 1,472 13,109

% 16.8 9.3 74.0 33.7 5.9 34.4

on Mergers

and Acquisitions,

1979, July,

1981, Tables 19 and 20, p. 9.

TABLE 2
TESTS OF HORIZONTAL MERGERS VERSUS OTHER TYPES OF FIRMS OVER

$10

MILLION

IN ASSETS

OF ACQUIRER

Vertical

Product Extension

n = 22 Mean Assets
of Acquiring

n = 175 83569.8 t = -1.30 (.193) 447.9 t = .28 (.781) 32.6 t = -1.81 (.072) 373.2 t =-.32 (.748) 669.1 t= -.54 (.543)

Market Extension n = 15

Other Conglomerate

Horizontal

n = 179 85041 t = -1.38 (.170) 714.9 t = -1.63 (.104) 46.18 t = -3.21 (.002) 503.9 t= -1.51 (.133) 982.0 t = -2.38 (.018)

n = 122 59623.4

Firm Mean Assets of Acquired Firm Mean Profit of Acquired Firm Year Prior to
Acquisition

110752.5 t = -1.53 (.133) 597.4 t = -.70 (.483) 27.7 t = -.38 (.704) 318.8 t=.31 (.755) 863.7 t= -.97 (.338)

12728.3 t = -3.47 (.001) 818.3 t = -1.23 (.233) 53.6 t = -2.07 (.053) 536.7 t = -.30 (.166) 309.4 t= -1.42 (.172)

478.8

23.7

Mean Amount Paid for Firm Mean Sales of Acquired Firm Year Prior to
Acquisition

349.9

593.4

other types of mergers. The three classes in which horizontal mergers are dominant-mining, petroleum refining, and paper-are all heavily dependent upon natural resources. Of the three, petroleum refining is the class most completely dominated by horizontal mergers. Such mergers are an attempt to acquire petroleum reserves that are known instead of pursuing the riskier exploration path.
EMPLOYMENT CHANGE, PRIOR AND POST-MERGER COMPARISONS

The merger of a firm can be expected to affect a region in a number of ways: employment change, service and mate-

rial linkage changes, and changes in management. Of these, employment probably has the greatest short-run impact on the local community and region. This area of change has received the least amount of attention in examination of mergers, outside of interest in plant closures and openings. To examine this employment change, employment levels (to the nearest hundred employees) were obtained for 191 plants. These plants represent 74 of the 122 firms that undertook horizontal mergers in the period 1972-1978. The level one of two years before the merger and the level one or two years after the merger were compared. This of course assumes that the

366

ECONOMIC GEOGRAPHY
TABLE 3
DISTRIBUTION OF HORIZONTAL MERGERS BY SIC,

1972-1978,

WITH GREATER THAN

1%OF ALL HORIZONTAL MERGERS

Total Number *Mining

*Petroleum

%of all Horizontal Mergers 3.3 13.9 12.3 2.5 5.7 4.1 4.1 1.6 1.6 1.6 4.1 1.6 9.0 6.6 2.5 1.6 1.6 7.4

% of all Mergers in Industry Class 40 70.8 23 44.4 53.8 35.7 11.1 40 25.0 11.8 19.2 11.1 23.9 17.8 10.7 28.6 28.6 14.6

% of all Mergers 7 3.2 2.6 1.8 1.3 .9 .9 .4 1.6 .4 .9 .8 2.0 1.5 .6 .4 .8 1.7

4 17 15 3 7 5 5 2 2 2 5 2 11 8 3 2 2 9

Exploration Food Apparel & Textiles 'Paper Printing & Publishing Chemicals Petroleum Rubber & Plastics Stone, Clay, Glass & Cement Primary Metals Fabricated Metal Products
Non-electrical

Machinery Electrical Machinery

Transportation

Equipment Instruments Miscellaneous Holding Company

? Horizontal merger is dominant type in this class. Lambda (symmetric) = .1208 for cross-tabulation of all 5 merger types with SIC classes. TABLE 4
TESTS OF EMPLOYMENT CHANGE FOR INDIVIDUAL PLANTS

(Difference) Mean Single City Plants Multicity Plants Foreign Acquired Plants All Plants 1.73 -.75 -.54 -.06

t-Value 2.39 -1.43 -.53 .13

Probability .02 .16 .60 .90

n 34 88 28 122

merger was the dominant factor that affected employment change, if any, during that time period. In most cases, it was impossible to determine if a plant that disappeared from the data was due to closure or transfer of ownership. If it could be determined that the plant changed owners, the employment level was traced and entered in the data set. If the plant disappeared, it was treated as missing and was not included in the analysis. A t-test analysis compared employment levels before and after the merger. The entire collection of plants was tested as well as subsamples of plants that are a

part of a multicity network as opposed to those plants that are single plants or plants all located in a single city and those acquired by foreign corporations. Of these tests the only significant one was a comparison of employment levels of single city plants (Table 4). The single city plants had significantly higher employment levels after the merger. It should be noted that on average only single city plants increased their level of employment, while the others had a statistically insignificant decrease. This result agrees with the findings of Leigh and North [20] in Britain. The mean employment change by the

THE HORIZONTAL TABLE 5

FOR CHANGE OF MEAN EMPLOYMENT SIC DISTRIBUTION PRIOR FIRMSCOMPARING INDIVIDUAL PLANTSAND ACQUIRING EMPLOYMENT AND POST-MERGER

MERGER

367

SIC Class Food Textiles Apparel Lumber Furniture Paper & Allied Products Printing Chemicals Rubber & Plastics Stone, Clay, Glass & Concrete Primary Metal Fabricated Metal Products
Non-electrical

Mean % Change for Plants by Mean % Change for Plant by Acquiring Firm's its Class Class 9.9 (11) 5.0 (8) 3.7 (12) .95 (11) 2.6 (9) 2.8 (16) 1.1 (4) 1.0 (14) 3.9 (7) 17.8 (16) .9 (5) .9 (8) 2.5 (18) 2.6 (34) 1.3 (6) 6.3 (18) 1.5 (2) 6.4 (6) 13.1 (2)

1.1 (20) 1.2 (8) 4.7 (7) 6.2 (4) 9.0 (14) .9 (5) 1.5 (2) 1.3 (11) 3.3 (32) 1.0 (27) .6 (3)

Machinery Electrical Machinery Equipment 1Transport Instruments

(1) Sample size in parentheses.

SIC class of plants in the sample was examined next. For sample plants, the largest increases for the plant by its SIC class was found in food and the stone, clay, glass, and concrete sectors (Table 5). As Table 6 reveals, the single city plant and multicity plants are not equally distributed among the SIC classes. Food is dominated by multiplant firms. Tables 5 and 6 show that the food industry is undergoing a change to a multiplant industry. Apparel, the only other industry to have a strong single plant character, was also moving in that direction, but more slowly, due to need for response to rapidly changing market conditions and market proximity. Schere [30] points out that brewing, petroleum refining, glass bottle, and cement industries have geographic dispersion as their dominant motives in a multi-plant firm. Employment increases in such plants are expected if they are undertaking plant acquisition to extend themselves graphically. Again

the heavily resource dependent industries are predominant. The pattern of mean employment change by the SIC class of the acquiring firm is less obvious. Again stone, clay, and glass exhibits a large increase as does food, but additional industries, such as lumber, share substantial increases. Such increases must be viewed with caution since a firm which is acquired may have plants that produce products outside of its primary SIC classification. An acquiring firm thus acquires some plants that may not be of primary interest, but still can be profitably operated. Also, the small number of firms (in the case of lumber) should be noted. Since different parts of the country experience their own set of business conditions as well as problems, regional differences might exist in terms of employment change. However, an analysis of variance under a number of different regionalizations revealed no significant differences by region for employment change (Table 7). Again, the mean increase was positive in all cases. The two regions of the largest mean increases, Mississippi and New England, are dominated by stone, clay, and glass and electrical machinery, respectively. Stone, clay, and glass is a high employment increase industry as seen previously, while the electrical machinery industry of New England in this sample is of the high growth computer type. Overall though, the results suggest little regional variation. The general conclusion that can be drawn is that a horizontal merger maintains or improves the employment figures for acquired plants, at least in the shortrun. These results counter often cited fears of local and regional catastrophe associated with employment decline. Some industrial classes do better than others in employment increase, but regional influences seem to be unimportant in comparison.
CONCLUSIONS

The complexity and motivations of the

368

ECONOMIC GEOGRAPHY
TABLE 6
DISTRIBUTIONS OF ACQUIRED PLANTS AND ACQUIRING FIRMS

SIC Class Food Textiles Apparel Lumber Furniture Paper & Allied Products
Printing

Single City Plants 8 3 6 3 4 2 2 1

Multiple City Plants 3 5 6 8 9 12 2 12 6

-Acquiring

Firm 12 1 3 1

6 5 4 2

Chemicals Rubber & Plastics Stone, Clay, Glass & Concrete Primary Metal Fabricated Metal Products Non-electrical Machinery Electrical Machinery Transport Equipment Instruments Holding Company

1 1

15 4

4 3

5 3 1 1 -

13 31 -

8 7 3

7
-

TABLE
REGIONAL DISTRIBUTION OF MEAN PRIOR COMPARING TO POST

7
CHANGE FOR INDIVIDUAL PLANTS EMPLOYMENT

EMPLOYMENT

MERGER

Mean & Change Mississippi Region Louisiana, Mississippi

Arkansas, Texas

Standard Deviation 13.9

Number of Plants 28

6.2

South Atlantic Region Georgia, Florida, South Carolina, Alabama Western Region California, Washington New England Region
Maine, Massachusetts,

2.1

4.1

21

1.1

.78

13

New Hampshire,
Connecticut

4.8

11.4

Midwest Region Ohio, Indiana, Illinois, Wisconsin,

Minnesota

1.5

3.2

36

Middle Atlantic Region New York, New Jersey, Delaware, Pennsylvania, Virginia, North Carolina

3.1

9.0

41

THE HORIZONTAL MERGER

369

rationalization process undertaken by Riegel Paper illustrate nicely the necessity of examining not only the locational changes but the economic environment of the time. Divestitures and acquisitions of individual plants as well as firms are often motivated by a combination of spatial and aspatial factors. In a more empirical sense this paper has demonstrated that the horizontal merger can be very complex and involves a number of ownership changes for a single plant in a short period of time. Stress in an industry also seems to be an important component in the occurrence of horizontal mergers. Following a horizontal merger, individual acquired plants in the short run increase employment. This was true for every industry class and region, although they differed in degree. Single city plants, which tended to be small, benefitted significantly from a merger with a larger firm. This may be due to attempts to exploit economies of scale, as is the often suggested reason for horizontal mergers. These results are contrary to the often cited fears about the effects of an acquisition on the local community. Of course, such instances can be found, but they seem to be the exception rather than the rule. Additional research should examine the other changes in an acquired firm and its facilities, such as service and material linkage changes, as well as the degree of autonomy enjoyed by the management of an acquired plant. Some of this research has been undertaken in Great Britain [20; 27], but much is left to be done for the United States.

3. Bechenstein, Alan R. "Merger Activity and Merger Theories: An Empirical Investigation," The Antitrust Bulletin, Spring (1979), pp. 10528. 4. Bradley, James W. and Donald H. Korn. "Acquisitions and Mergers: A Shifting Route to Corporate Growth," Management Review, March (1979), pp. 46-51. 5. "Corporate Merger Activity in Selected Fourth District Cities, 1950-1967," Economic Review, Federal Reserve Bank of Cleveland, Cleveland, Ohio, Oct. (1968), pp. 3-10. 6. Cotterill, Richard W. and Willard F. Mueller. "The Impact of Firm Conglomeration on Market Structure: Evidence for the U.S. Food Retailing Industry," The Antitrust Bulletin, Fall (1980), pp. 557-82. 7. Dick, P. "The Multiplant Business Enterprise and Geographical Space: Some Issues in the Study of External Control and Regional Development," Regional Studies, Vol. 10 (1976), pp. 401-12. 8. Erickson, Rodney. "Corporations, Branch Plants and Employment Stability in Nonmetropolitan Areas," Industrial Location and Regional Systems. Edited by J. Rees, G. Hewings, and H. Stafford. London: J. F. Bergin Publishers, 1981. 9. Federal Trade Commission, Statistical Report on Mergers and Acquisitions, August, 1980. 10. Fleming, Douglas K. and Gfinter Krumme. "The Royal Hoesch Union: Case Analysis of Adjustment Patterns in the European Steel Industry," Tijdschrift Voor Econ. En. Soc. Geografie, Vol. 57 (1962), pp. 177-99. 11. Forbes. "Something for Everyone," March 15 (1972), p. 68. 12. Gort, M. "An Economic Disturbance Theory of Mergers," Quarterly Journal of Economics, Vol. 83 (1969), pp. 624-42. 13. Hakanson, Lars. "Towards a Theory of Location and Corporate Growth," Spatial Analysis, Industry and the Industrial Environment. Edited by F. E. Ian Hamilton and G. J. Linge. Chichester: John Wiley, 1979. 15. Hamilton, V. B. "The Business Protection Act and the Control of Conglomerate Mergers," Texas Law Review, Vol.38 (1980), pp. 588-621. 16. Hennessey, J. H. Acquiring and Merging Businesses. Prentice-Hall Inc., Englewood Cliffs, N.J., 1966. 17. Hughes, Alan, Dennis Mueller, and Ajit Singh. "Competition Policy in the 1980's:The Implications of the International Merger Wave,"' The

LITERATURE CITED 1. Albright, A. E. "Why Acquire or Merge at All? The Business of Acquisitions and Mergers. Edited by G. Scott Hutchinson. New York: President's Publishing House, 1968. 2. Barron's National Business and Financial Weekly. Dow Jones and Company, New York, N.Y. Various issues (1970-1978).

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ECONOMIC GEOGRAPHY Determinants and Effects of Mergers. Edited by Dennis C. Mueller. Cambridge, Mass., Oelgeschlager, Gunn and Hain, 1980. 29. Pfeffer,J. andG. R. Salanick. The ExternalConitrol of Organizations. New York: Harper and Row, 1978. 30. Sherer, F. M. "The Determinants of Multi-Plant Operation in Six Nations and Twelve Industries," Kyklos, Vol. 27 (1974), pp. 124-32. 31. Semple, R. K. and M. Green. "Corporate Headquarter Migrations in North America: A Theoretical Perspective," paper presented at Association of American Geographers, Annual Meeting, San Antonio, 1982. 32. Semple, R. K. and M. Green. "Interurban Corporate Headquarter Migrations in Canada," paper presented at Canadian Association of Geographers, Ottawa, June, 1982. 33. Stacey, N. A. H. Mergers in Modern Business. London: Hutchinson Co., 1970. 34. Stewart, I. C. "Australian Company Mergers," Economic Record, Vol. 153 (1977), pp. 1-29. 35. Stich, R. "Have U.S. Mergers Been Profitable?" Management International, Vol. 14 (1974), pp. 33-40. 36. Thomas, M. D. "Explanatory Frameworks for Growth and Change in Multiregional Firms," Economic Geography, Vol.56 (1980), pp. 1-17. 37. Townroe, P. M. "Locational Choice and the Individual Firm," Regional Studies, Vol. 3 (1969), pp. 15-24. 38. Wall Street Journal, Dow Jones and Company, New York, N.Y., various issues 1970-1978. 39. Walker, D. F. "A Behavioral Approach to Industrial Location," Locational Dynamics of Manufacturing Activity. Edited by L. Collins and D. F. Walker. London: John Wiley, 1975. 40. Walker, R. and M. Storper. "Capital and Industrial Location," Progress in Human Geography, Vol. 5 (1981), pp. 473-509. 41. Watts, H. D. The Large Industrial Enterprise. London: Croom Helm, 1981.

18. Kierulff, Herbert E. "Finding the Best Acquisition Candidates," Harvard Business Review, January-February (1981), pp. 66-8. 19. Krumme, G. "Toward a Geography of Enterprise," Economic Geography, Vol. 45 (1969), pp. 30-41. 20. Leigh, Roger and David North. "Acquisitions in British Industries: Implications for Regional Development," Contemporary Industrialization: Spatial Analysis and Regional Development. Edited by F. E. Ian Hamilton. London: Langham, 1978. 21. Lev, Baruch and Gershon Mandelker. "The Microeconomic Consequences of Corporate Mergers," The Journal of Business, Vol. 45 (1972), pp. 85-104. 22. McCarthy, George D. Acquisitions and Mergers. New York: The Ronald Press Co., 1963. 23. Marketing Economics Key Plants. Edited by A. Hong, Marketing Economics Institute, Ltd., New York, N.Y., 1973 to 1979 issues. 24. Massey, D. "A Critical Evaluation of IndustrialLocation Theory," Spatial Analysis, Industry and the Industrial Environment. Edited by F. E. Ian Hamilton and G. J. Linge. Chichester: John Wiley, 1979. 25. Moody's Industrial Manuals 1970-1980. Moody's Investor Service, New York, N.Y., 1970-1980. 26. Moody's OTC Manuals 1972-1980. Moody's Investor Service, New York, N.Y., 1972-1980. 27. North, D. J. "The Process of Locational Change in Different Manufacturing Organizations," Spatial Perspectives on Industrial Organization and Decision-Making. Edited by F. E. Ian Hamilton. London: John Wiley, 1974. 28. Penrose, E. The Growth of the Firm. Oxford: Bleckwell, 1959.